DECISION RELATIVE TO THE APPLICATION OF
MIDDLESEX BANCORP, MHC
SERVICE BANCORP M.H.C., SERVICE BANCORP, INC., AND STRATA BANK
Middlesex Bancorp, MHC ("Middlesex" or the "Petitioner"), Natick, Massachusetts has petitioned the Board of Bank Incorporation (the "Board") to acquire Service Bancorp, M.H.C. ("Bancorp") and Service Bancorp, Inc, ("Service"), each of which is located in Medway, Massachusetts and for the acquisition of their subsidiary bank, Strata Bank, Medway, Massachusetts under the provisions of General Laws chapter 167A, sections 2 and 4. The acquisition is a cash transaction whereby the Petitioner will purchase the minority stock of Service. The transaction will involve the merger of Bancorp and Service with and into Middlesex. The merger of two holding companies is authorized under General Laws chapter 167H, section 7, paragraph (3). Middlesex is the mutual holding company for Middlesex Savings Bank, Natick, Massachusetts, a state-chartered stock savings bank. Bancorp and Service's subsidiary bank, Strata Bank, is also a Massachusetts-chartered stock savings bank. The proposed acquisition is part of a multi-step transaction involving a petition before the Division of Banks (the "Division") for authority to merge Strata Bank with and into Middlesex Savings Bank. The Petitioner had received approval to reorganize into a mutual holding company in separate transactions approved by the Board and the Division in Decisions dated March 18, 2009. The Petitioner has subsequently received all necessary approvals for the reorganization by applicable federal bank regulatory agencies. Since the reorganization into a mutual holding company will occur prior to this transaction, all references herein will reflect the consummation of the reorganization.
Notice of the petition by Middlesex was published as directed by the Board thereby affording opportunity for interested parties to submit comments. A public hearing relative to this application was held by the Board on April 23, 2009 and the period for filing comments expired on April 28, 2009. The Board reviewed the application, testimony received at the public hearing, and all related documents in accordance with the statutory criteria of whether competition among banking institutions will be unreasonably affected and whether any net new benefits as well as public convenience and advantage would be promoted by approval of the proposed transaction. The record of performance under the Commonwealth's Community Reinvestment Act ("CRA"), General Laws chapter 167, section 14 and its implementing regulations 209 CMR 46.00 et seq., by the banks involved in the transaction was also a factor considered by the Board.
One provision of law requires the Board to have received notice from the Massachusetts Housing Partnership Fund (the "MHPF") that satisfactory MHPF arrangements for the proposed transaction have been made by Middlesex pursuant to section 4 of chapter 167A of the General Laws and guidelines adopted by the MHPF. The Board has received notice from the MHPF, in a letter dated February 25, 2009 that arrangements satisfactory to it have been made for the transaction.
Middlesex is a newly formed mutual holding company. Its sole direct subsidiary is Middlesex Savings Bank. As of March 31, 2009, Middlesex Savings Bank had total consolidated assets of $ 3.6 billion. In addition to its main office, Middlesex Savings Bank operates 25 branch offices located in Acton (2 offices), Ashland, Bedford, Boxborough, Concord (2 offices), Framingham (3 offices), Groton, Holliston, Hopkinton, Littleton, Maynard (2 offices), Medfield, Millis, Natick, Needham, Southborough, Sudbury, Wayland, Wellesley, and Westford. Its deposits are insured to allowable limits by the FDIC and deposits in excess of those limits are insured by the Depositors Insurance Fund.
Bancorp is a Massachusetts mutual holding company organized in 1997. One year later it formed the mid-tier holding company. Bancorp owns 54.2% of the capital stock of Service, the mid-tier holding company. The remaining 45.8% of Service's stock is publicly held. Service's sole direct subsidiary is Strata Bank. As of March 31, 2009, Strata Bank had total consolidated assets of $ 372 million. In addition to its main office, Strata Bank operates seven branch offices located in Bellingham, Franklin (2 offices), Hopkinton, Medfield, Milford, and Millis. Its deposits are insured to allowable limits by the FDIC and deposits in excess of those limits are insured by the Depositors Insurance Fund.
The Petitioner has addressed the issue of whether competition among banks will be unreasonably affected by the proposed transaction. Part of that analysis is typically detailed according to various tests used by federal agencies. That analysis demonstrates that consummation of the transaction will not result in undue concentration of banking resources in the Commonwealth. The Board's review, however, is not limited to such federal standards. In addition to that analysis, the Division considers the competitive impact of the proposed transaction on a community-by-community basis, as well as on the overall banking structure of the Commonwealth. As stated above, the communities in the primary service area for the merging banks are different. There are three communities in which both banks have banking offices. The Board is aware that as part of this multi-step transaction, Middlesex Savings Bank has petitioned the Division to close the branch offices of Strata Bank in Hopkinton and Medfield, where it also maintains banking offices. However, the Board has noted that there are numerous banks with banking offices located in those two communities as well as the combined primary service area of the merging banks. Therefore, customers of Strata will continue to be able to choose from a variety of banking options. Accordingly, the Board's analysis of the competitive impact of the acquisition weighs in favor of the proposed transaction.
The Board has also considered whether public convenience and advantage will be promoted by this transaction. The Petitioner states in the application that customers of both banks will benefit through a larger network of branches, Loan Production Offices, and ATMs. The larger resulting bank will be able to offer a wider array of products. At the public hearing, testimony was received by the Petitioner stating that customers of Strata would have access to a full telephone call center with expanded hours, retail investment services, a broader array of affordable mortgage programs, remote deposit and lockbox services, and greatly expanded lending capacity for the benefit of both businesses and consumers in the Strata market.
The financial aspects and tax consequences from the structure of the transaction were also considered by the Board. The Petitioner's acquisition of Bancorp and Service is a cash transaction whereby it will buy out the minority stock holders of the mid-tier holding company, Service. The Board is aware of the financial aspects and transfer of funds between the Petitioner and its subsidiary bank which will facilitate this transaction. Upon review the Board has determined that after the acquisition, the resulting entities will remain sufficiently capitalized under all regulatory standards. Management factors reviewed were also found supportive of approval. Additionally, all other requirements of statute relating to a bank holding company transaction have been met. These factors considered by the Board weigh in favor of the transaction.
The record of performance under CRA by the subsidiary banks in a bank holding company transaction is also a consideration by the Board. For financial institutions not directly under the jurisdiction of the Commonwealth, the Board initially looks to the publicly available descriptive rating and evaluation by a federal or another state's banking regulatory agency. Such review for state-chartered banks such as the subsidiary banks involved in this transaction, includes examination by personnel of the Division as well as analysis of concerns received from a bank's community and a bank's response to those concerns fairly raised. The Board has noted that Middlesex Savings Bank had an "Outstanding" rating and Strata Bank had a "Satisfactory" rating in their most recent examination of performance. Based on the information presented and available to the Board, the Board's view of this factor is consistent with approval.
Based on the record on this matter including the testimony received at the public hearing considered in light of all relevant statutory and administrative requirements, the Board finds that competition among banking institutions will not be unreasonably affected, that public convenience and advantage will be promoted by consummation of the proposed transaction and that records of performance under CRA by the banks involved in this transaction are consistent with its approval. Therefore, in accordance with these findings and pursuant to the statutory authority cited herein, the Board hereby approves the application and authorizes Middlesex Bancorp, MHC to acquire Service Bancorp, M.H.C, and own and control the stock of Service Bancorp, Inc. and Strata Bank. The Petitioner will also continue to be subject to the provisions of chapter 167H of the General Laws and other applicable statutes.
The approvals herein are subject to the condition that all related transactions are completed within one year of the date of this Decision.
Board of Bank
Steven L. Antonakes
Commissioner of Banks
Navjeet K. Bal
Commissioner of Revenue
Timothy P. Cahill
Treasurer and Receiver-General
June 26, 2009